June 2011 Public Sector Letter, "Actual Cost vs. Market Price: Does Market Valuation of Pension Liabilities Fit the Public Sector?"
This issue of The Segal Company's Public Sector Letter discusses the fundamental differences between two methods for measuring pension liabilities: actuarial accrued liability (AAL), the current practice, and the market value of liabilities (MVL) approach, which continues to be the focus of considerable media attention. In particular, the usefulness of both measures for public sector decision makers is addressed. A case is made for why AAL continues to be the preferred method. Critical open questions are also discussed.
This is the first Public Sector Letter in a series of three on retirement topics. The second Public Sector Letter focused on pension funding policy, including goals to aim for and pitfalls to avoid. The final first Public Sector Letter in the series discussed retirement plan design.